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Reputational Risk: Schadenfreude Or Trouble For Us All ?

by Admin | May 19, 2016 | Uncategorized |

Reputational bombshells can be spectacular own goals or nightmares created from taking one’s eye off the ball.

It’s the own goals we usually hear about and, indeed, invariably gloat over.  I’ll provide a summary of the gloatiest ones later.  But first, can one in reality ever completely protect a brand from reputational risk ?  Probably not, I hear you say.  Even the most elaborate systems, procedures, quality checking, disaster planning and PR will not prevent the kind of nightmare Volkswagen recently suffered when their own staff were found to be responsible for tampering with their cars’ emission systems.  If that can happen inside an 80-year old firm with global sales of €200 billion, then what hope for the rest of us ?

Well, surprisingly, the answer is quite a lot.  For a start, the Volkswagen experience has reminded us that the activity there was probably criminal, and that several senior employees lost their jobs.  This perhaps sends out a strong message to future ‘emissions hackers’ and their ilk.  Might such people now think twice before embarking on a digital crime spree, particularly as their direct gain from the crime is likely to be minimal ?  And the recent Tesco accounting scandal, where profits were hugely inflated, again resulted in rolling heads, depressed share prices and severe raps on knuckles. Salutatory warnings for managers about to set out on financial skulduggery.

So I’m saying that the massive publicity surrounding some of the biggest risk cases will, in time, help reduce future ones.  And, interestingly, the Volkswagen scandal has enabled the company to force through some heavy reorganisation, something the behemoth was unlikely to have achieved without such a massive wake-up call.

The most difficult risk to plan for is the least expected.  How can you prevent your own CEO getting carried away during a live interview, veering off-message in a spectacular and catastrophic way?  I’m obviously thinking Gerald Ratner here (so hackneyed now I won’t repeat the details), but also the bosses of Barclays, BP, Topman, EMI (see below for gory details).  There must be something intoxicating about combining power and live media which can make even a most seasoned executive commit harikari on air. These people know the ropes – they don’t need to be told not to say the things they’ve said.  They simply get carried away with their own invincibility.  The only way to prevent these PR-hand grenades is to have a minder accompany the executive, armed with a sophisticated bleep button.

Crises explode faster through social media than those transmitted through old media.  The sheer power of Twitter to touch so many so quickly makes control impossible.  But many companies, caught with their pants down for one reason or another, have turned a crisis into a positive outcome.  Invariably, these companies have staff who care about their employer, are empowered to act quickly without long decision-making chains, and essentially react in a human rather than corporate way.  Thus when O2 suffered a massive network outage, with the usual accompanying Twitter braying, staff responded to tweets in an honest and disarming way, with touches of self-deprecating humour.  This approach provided a lightning conductor to the issue which dampened down rapidly.

We do need to be concerned about those companies hit by negative reputational bombshells. The schadenfreude is fun at first.  But what follows is often a hit to the share values of our pension funds.

Top 4 Reputational Bombshells

  • BP: Massive oil spill; CEO’s public response poured even more oil on the flames
  • Sony: 77m customers’ credit card details hacked; company slow in admitting and responding
  • Thomas Cook: heartless response to death of two kids in one of their properties
  • Tesco: executives inflated profits by £220m causing share price dive

Top 4 Self-Inflicted Boobs by Those Who Should know Better

  • Asked to clarify the target market for the Topman clothing chain, the firm’s brand director replied: “Hooligans or whatever.”
  • The chairman of Cable & Wireless, sent a memo to staff which said: “Congratulations, we work for an underperforming business in a crappy industry and it’s going to be hell for the next 12 months.”
  • Alain Levy, chief executive of the music company EMI, offended most of Finland when he said that he had cut the roster of artists on a subsidiary label there because there were “not that many people in the country who could sing”.
  • Matt Barrett, the Barclays chief executive, shocked observers by suggesting that consumers should stay clear of his company’s product, Barclaycard, because it was so expensive. He admitted he would not use one himself. He said: “I do not borrow on credit cards. I have four young children. I give them advice not to pile up debts on their credit cards.”